Share Tweet Share Tweet. The SENSEX- or SENSitve indEX was introduced by the Bombay stock exchange on January 1 It is one of the prominent stock market indexes in India.

The Sensex is designed to reflect the overall market sentiments. It comprises of 30 stocks. These are large, well-established and financially sound companies from main sectors. The method adopted for calculating Sensex is the market capitalisation weighted method in which weights are assigned according to the size of the company. Larger the size, higher the weightage. This is for the purpose of ease of calculation and to logically represent the change in terms of percentage.

The stocks are selected based on a lot of qualitative and quantitative criterias. You can view the listing criteria here.

BSE SENSEX - Wikipedia

The construction technique of index is quite easy to understand if we assume that there is only one stock in the market. As our second step to understand the index calculation, let us try to extend the same logic to two stocks — A and B. Since the Sensex follows the market capitalization weighted method, we have to find the market capitalization or size of the company- in terms of price of the two companies and proportionate weightage will have to be given in the calculation.

How do we compute size of the company- in terms of price? We assume that company A has , shares outstanding and B has , shares outstanding. This will be equivalent to points. The market capitalization will have to be reworked. Hence, the index would move from to to indicate the net effect. What we said was the general method to construct indices.

So, the numerator is available straight from the BSE site. At that point, the Sensex is at What would be the value of Sensex if the free-float market capitalization is Rs 11,50, Crore?

Am I saying it right by saying UNEVEN? How would you react to such a statement? The language is confusing.

What is Sensex and Nifty? How they are Calculated + BSE NSE Difference

It could mean that the market is volatile. The concerned concept is written in very simple tone so that an ordinary individual can also comprehend it with out much hindrance.

Sharekhan

Jins , you are Good , May GOD give you the skills to explain the basics in such an easy way as you do. Pinpoint explanations, very well explained for the beginners, Thank you for sharing. Please keep on writing. Its well explained step by step with ease examples …easy to digest and understand… Well said and best of luck for future….

Finally I got it here with excellent explanations with perfect examples…. I questioned many managemet students. Here is an explanation that clears every doubt.

The example has made it amply clear. You can get the latest posts delivered to you for free via Email or RSS. Website developed by Toobler Technologies. Investing Basics Introduction to Financial Statements Futures and Options — The basics. Financial Discipline for all. Choosing a Broker and opening Demat Accounts Before Picking up stocks.. Articles New to investing? Try our Beginner's Lessons.

How is it calculated? The base year of Sensex is and the base index value is set to for that period. WHY IS THE BASE VALUE SET TO POINTS?

HOW ARE THE STOCKS SELECTED? Just multiply the total number of shares of the company by the market price. Back to our example- We assume that company A has , shares outstanding and B has , shares outstanding.

What is free float? It excludes shares held by promoters, governments or trusts, FDIs etc.. To find the free float market value, the total value of the company total shares x market price is further multiplied by a free float market value factor, which is nothing but the percentage of free float shares of a particular company.

So logically, the company which has more public holding will have the highest free float factor in the Sensex. The index divisor nothing but the present level of index.

So, now, we have all the figures. The answer is 14, You may like these posts: What is a stock index? Stock markets in india BSE stock classifications. Pushpendra tiwari June 21, at 1: Kassi September 21, at 3: Elida September 21, at 8: TANMOY March 16, at J Victor June 28, at 6: Prateesh August 20, at 3: J Victor August 20, at 6: Ankyt December 4, at Bharath March 4, at All the very best to your future endeavours. J Victor July 1, at Ravi July 1, at 1: Pari July 12, at Tushar July 23, at Sai Sudheesh July 30, at Tanveer August 29, at 2: Robin September 19, at 5: Roshni January 7, at 8: Franklin January 10, at 1: Akmal Ansari January 17, at 2: Hitesh April 3, at 7: Each chapter is so neat;y choreographed and interesting.

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Its very easily and nicely explained. Aditya November 11, at Beginner's Lessons Point Blank Financial Discipline for all. Stock investing strategies Technical Analysis I Technical analysis II Before Picking up stocks.. Choosing a Broker and opening Demat Accounts Make your debut!! Valuation of shares Futures and Options - The basics. About Jins Victor Jins Victor is the founder of www. Based in Kochi, he heads one of the leading financial consultancy firms in Kerala.

He is an avid follower of stock markets and invests in his own account. Through this website, he shares his experiences and knowledge and teaches how to make money from share markets using solid rules. Subscribe You can get the latest posts delivered to you for free via Email or RSS.